Overall Audit Plan and Audit Program

Question 1

Explain the scope of an Audit Plan

Answer 1

The scope of the audit plan depends on the size of the company, the complexity of the audit, and on the previous experience of the auditor with the audited company and his knowledge about the company’s business and environment.
An important component of the audit plan is the acquisition of knowledge about the business and the environment of the organization. This knowledge serves the external auditor to identify events, transactions or practices that may have a significant influence on the financial statements.
It may be useful to discuss parts of the audit strategy or certain procedures with the management, the supervisory board, the internal audit or other employees of the organization in order to:
(1) Increase the effectiveness and efficiency of the audit
(2) Coordinate audit procedures within the organization

Question 2

How about the Audit Strategy?

Answer 2

The external auditor has to develop and document an audit strategy which focuses on the expected scope and the expected procedures of the audit.
Aspects which must be considered regarding the development of the audit strategy:
(1) Knowledge of the business and the environment of the organization
(2) Understanding of the organization’s accounting and its internal control system
(3) Risk and probability
(4) Type, time and scope of procedures
(5) Coordination, guidance, supervision and control
(6) Further related aspects (e.g., going concern criterion)

Question 3

In what consists the Audit Program?

Answer 3

I.Tests of Controls und Substantive Tests of transactions I.I This part contains a description that documents the understanding of the internal control system as well as a description of procedures performed to obtain an understanding of the internal control system.

II.Analytical Procedures
II.I Analytical procedures may be conducted in a cost-efficient manner, which is why they are used very often.
Analytical procedures in phases II and III are more focused (on single accounts, on a monthly basis etc.) and more extensive than they are in phase I and IV.

III.Tests of Details of Balances
III.I Identify client business risks affecting accounts receivable
III.II Set performance materiality and assess inherent risk for accounts receivable
III.III Assess control risk for sales and collection cycle
III.IV Design and perform tests of controls and substantive tests of transactions for sales and collection cycle
III.V Design and perform analytical procedures for accounts receivable balance
III.VI Design tests of details of accounts receivable balance to satisfy balance-related audit objectives